Third, the theme of economic and resource-based drivers of attractiveness was discussed.
On the topic of economic factors and their role on attractiveness, Pouttu agreed that the company could probably operate their business on a larger scale, with more capital, if they desired. Nevertheless, the owners have wanted to keep their growth at a moderate level and build up their operations incrementally, with capital investments made at stra-tegic moments.
We could do this with more capital, and it could be a quicker way to estab-lish trust and credibility towards the brands. But it might not necessarily
re-sult in that outcome.
With more working capital, Luxbag could probably accelerate their growth. However, with their yearly growth rate around 15-20 per cent, Pouttu felt this rate is better in the long run and vis-á-vis local market development. The luxury brands might not even wish for uncontrolled growth spurts in the market, as they could fear excessive product avail-ability and the development of parallel markets. This perceived risk is in line with
exclu-sivity, which is identified as the most essential component of luxury brands, with re-stricted accessibility and deliberately controlled distribution chains adding to the scarcity principle.
A competitor being a bigger operator does not automatically mean they are a more attractive partner or a new potential operator in emerging markets. Financial stability and cost-effectiveness certainly means a company can match the luxury brands’ budget re-quirements for purchasing the total look assortments, but they also need to have, e.g. an efficient sales-through rate for optimal performance. As Pouttu put it, Luxbag does not want to collect brands for display purposes; they want brands they know will be repre-sented as well as possible in the market – which will positively reflect on their perfor-mance and strategic fit. Pouttu argued they are as much of a strategic partner for the luxury brands as bigger operators, like franchisers are. For some brands, they are a so-called selective partner. The owner-managers felt they are very familiar with their brand part-ners’ practices by which they operate and select their distributors (logics of action).
These brand partners, our clients, they always want to retain their negotia-tion power. That’s one protecting element for us, in addinegotia-tion to the small size of our market. Another protection is that even though an operator might have economic resources or partnerships in another market, it doesn’t mean those brands would enter our market with their partners. They don’t want it, because they don’t want to give up a bigger negotiation power to the
distrib-utor, they want to hold on to the reigns.
When asked about possible obstacles or failures in gaining wanted brand partner-ships, Pouttu admitted certain negotiations are recurrent but have not for the time being proceeded. The underlying reasons include but are not limited to the luxury brand not fitting the company’s strategic portfolio or that the partnership would require major in-vestments on the company’s part. To be able to distribute one aspired brand, for instance, would require the representation of a total look assortment of items, which would require a significant share of the store space. Shop-in-shop solutions for specific brands within the store are not ruled out, but would probably not cumulate more business overall and again, might affect the balance of the brand portfolio. For instance a hyped megabrand, when joining a multi-brand store, might be very dominant and cut down the performance of others, if the store is not deliberate in maintaining the balance between all the repre-sented brands.
Brand X is an example of us not failing per se, but we know they have very strict company policies that we cannot match right now. It is important to keep up good relationships and be updated about each other, but we can’t start knocking on their door asking for permission to do things our own way.
Sometimes brands no longer meet the demands of the carefully curated selection due to in-house changes or have too small a niche for the small market in Finland, and get overshadowed by the larger brands. Luxury brands themselves naturally have their own brand matrixes, and are particular about the other brands they want to be distributed with.
The informant agrees the brands would probably interfere with any unwanted decisions on expanding the selection, but are in line with the current company strategy. Some brand offers the company has had to decline, as they have not fitted the company strategy and had the preferred brand positioning. Nonetheless, Pouttu would be happy if those brands found prospective distributors elsewhere, to strengthen the local market and its spectrum of different operators.
The expansion of a store space dedicated to men’s fashion is a good example of the proactive approach Luxbag has maintained in their business. Seeing potential develop-ments in the market is very important to communicate to the brand partners and Pouttu admitted their partners were very pleased the owners themselves took the initiative to open a men’s store.
If we don’t anticipate changes, the brand partner will put pressure on us – first by suggesting nicely, then less nicely, and the third option is perhaps ending the partnership altogether due to us not acting according to how they
perceive the developments in the market.
Pouttu told his company has received praise from brand partners for executing their plans just as they pledged which is sometimes surprising for the global brands. Some distributors might have spectacular plans to present in showrooms, which are never actu-alised. The company’s good reputation and motivation to see their plans through, can open negotiations within luxury corporations if, for instance, points of contact internally transfer to other brands or even product categories under the umbrella corporation. As many of the largest luxury corporations house a multitude of renowned brands, endorse-ments within the corporation can be fruitful.
I think the commitment to us comes through our established and successful operation, which is the best insurance for our operation. Our performance,
our operation, which develops and in the right way, that is our best security for joint commitment. That is the only security we have.